Question

This year, GHJ Inc. received the following dividends.

BP Inc. (a taxable California corporation in which GHJ holds a 6% stock interest)	$	18,900
MN Inc. (a taxable Florida corporation in which GHJ holds a 42% stock interest)		81,600
AB Inc. (a taxable French corporation in which GHJ holds a 20% stock interest)		18,900

Compute GHJ’s dividends-received deduction.

Answer 1

Dividends received deduction( DRD) is tax deduction that C corporations receive on the dividends distributed to them by the other companies in which they own stock of dividend paying company.

there are three tiers of possible deductions,

1. if company receiving dividend owns less than 20% of ownership , the DRD is a amount to 70% of dividend received.

2. if company receiving dividend owns 20 % to 80% of ownership , the DRD is amounts to 80% of dividend received.

3. if company receiving dividend owns more than 80% of ownership , the DRD is amounts to 100% of dividend received.

GHJ Inc holds 6% of stock in BP Inc i'e DRD will be 70% of dividend received. hence DRD = $18,900*70%=$13,230

GHJ Inc holds 42% of stock in MN Inc i'e DRD will be 80% of dividend received. So DRD= $81,6,00*80%=$65,280.

GHJ Inc holds 20% of stock in AB Inc , i'e DRD will be 80% of dividend received. hence DRD= $18,900*80%=$15,120

therefore total GHJ inc dividend received deduction is = $13,230 + $65,280 + $15,120 = $93,630